Gold: A use case for the modern era

Part I of II

For decades, physical gold investors have had to contend with superficial, naive and wholly ahistorical “arguments” from the mainstream financial press, from economists and experts of all stripes, claiming that gold is nothing but a barbarous relic. To them, the yellow metal is akin to investment superstition. It has no yield, it serves no practical purpose and the only attraction they could conceive of is merely symbolic, or perhaps, political. Thus, who in their right mind would “imprison” their perfectly good and functional fiat money in a gold bar, and then just let it gather dust in a vault for a decade or two? Well, it might have taken a little longer than many of us expected, but now we have an answer that even the most ignorant and unread of mainstream gamblers can understand. 

The inflationary pressures that have gripped most advanced economies are new to most investors, as well as ordinary citizens. We haven’t seen price increases at this rate in a very long time and the scale and speed of the phenomenon has caused everyone to reconsider what they thought they knew about money, budgeting and savings. And while there’s a lot of talk, “theories” and attempts to distract the public from the real causes of this problem, the fact remains that that it’s here and it’s here to stay. Especially for the average worker and saver who knows not and cares not about the academic explanation as to why his paycheck doesn’t suffice to cover his basic expenses anymore, a practical solution to his predicament is much more important than the intellectual debates about whose fault it is. And this precisely where gold comes in.

As reported in a rarely and very surprisingly accurate and honest article by Reuters, “Americans are increasingly turning to gold as an alternative currency as unprecedented government spending and Federal Reserve easing threatens to further erode the value of the greenback.” The article goes on to highlight that “the dollar has lost 86% of its purchasing power since 1971, according to U.S. government data, when President Richard Nixon ended the fixed convertibility of dollars to gold. Gold prices have jumped from around $40 per ounce to $1,900 during this time. Gold’s use as a currency started gaining traction after the financial crisis of 2007-2009 and has accelerated during the pandemic since 2020 as the government spent trillions, and the Federal Reserve bought unprecedented amounts of bonds in an effort to revive the economy.”

The answer to his challenge came in the form of private initiatives and new types of voluntary exchanges, as is always the case, after all. One such example is the “Goldback” money that is infused with small amounts of gold, and with denominations ranging from 1, which is 1/1,000th of an ounce of gold, to 50, which contains 1/20th of an ounce. The company behind them, Goldback Inc, has already sold around $30 million in the US and its President, Jeremy Cordon, predicts this could grow to around $1 billion over the next few years, with the only constraint being the speed at which the company can produce the new currency. A lot of small business owners and everyday consumers have already realized and taken full advantage of this solution to their exploding expenses problem. Even if one has no idea about basic economic principles or about the monetary history of the dollar or the gold standard, the concept of a stable means of exchange is now an absolute necessity if one is to plan ahead or run a business successfully. And there’s another layer that is particularly interesting to this growing use of gold as money: Those who adopt solutions like the Goldback are also quick to make the connection about what the real problem is. It’s not “capitalist greed” and it’s not “supply chain breakdowns” that’s making their weekly grocery run a significantly more expensive pursuit. It’s the rapidly diminishing value of their fiat currency. Or, as Ludwig von Mises put it, they come to understand that “the most important thing to remember is that inflation is not an act of God, that inflation is not a catastrophe of the elements or a disease that comes like the plague. Inflation is a policy.”

As we move deeper and deeper into this new inflationary era, new applications of this millennia-old use of gold as money are popping up, aided by technology and our connected modern world. For example, gold trading and investment mobile apps are seeing an explosion in demand for features that allow user to use their holdings for payments. Peer-to-peer (P2P) physical gold transactions are growing too. As more and more people are willing to accept payment in gold, a widening variety of trades are happening on this basis. 

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In the upcoming second part, we’ll shift our focus to the bigger picture and to the practically applicable lessons we can learn and apply to different facets of our lives and our societies.

Claudio Grass, Hünenberg See, Switzerland

This article has been published in the Newsroom of pro aurum, the leading precious metals company in Europe with an independent subsidiary in Switzerland. 

This work is licensed under a Creative Commons Attribution 4.0 International License. Therefore please feel free to share!